Issues Surrounding Mistake of Identity in Contract Law and a Possible Way Forward

Contract law has its roots planted in the realms of equity- equity meaning fairness. The courts, when dealing with cases involving equity, are unequivocally opposed to fraud or deceit. This makes the mistake of identity such a difficult area of contract law because, instead of having one guilty party and one innocent party there are usually two innocent parties. The courts are then left with the decision of which innocent party should suffer as a consequence of the ‘rogues’ fraudulent actions or deceit. Traditionally, the way the courts have answered this is by establishing whether or not a contract was formed between the seller and the ‘rogue’. If no contract was formed, then, the title of the goods could not pass to the third party and as such the seller is entitled to the return of the goods. However, if a contract is formed then the deceit only makes the contract voidable and the third party is entitled to retention of the goods because the title was legally transferred. This article will explore the inconsistent approach of the courts to mistake of identity and whether it would better fit with misrepresentation in conjunction or with principles of offer and acceptance.

The first approach the courts have taken is to establish whether the sale was inter praesentes or inter absentes, the difference being, where a case involved a face to face it was more likely for the court to hold that the seller intended to contract with the person they were dealing with and legally transferring the title of goods. The difference can be seen in Cundy. This case involved the sale of handkerchiefs in which the 'rogue' misrepresented themselves as another reputable company through the use of logos on its stationary. The court held that because the sale was made inter absentes, the seller had no intention to deal with the 'rogue' only with the known reputable company, therefore, title could not pass because there was no contract between the 'rogue' and the seller. This would suggest the courts are developing a clear principle in mistake of identity, but later cases will instead show clear inconsistency.

The general rule is, where a contract is agreed in writing it will be assumed the vendor intended to treat with the individual named on the document. However, this is where the court’s inconsistency begins to surface with the celebrated trio. The Philips case involved a jeweller who was given a bad cheque by the 'rogue'. The 'rogue' attempts to establish credibility by identifying himself as ‘SIR’ meaning knighted. The court held that because the sale was inter praesentes, the vendor intended to deal with the fraudster. This would contradict the written rule and suggest that the written rule is not conclusive because the vendor would have intended to treat with the individual named on the cheque.

In total reversal, the courts held in Ingram that the contract for a car was void for mistake despite the deal being made inter praesentes. While the 'rogue' again paid with cheque, the courts found that because the sellers put reasonable efforts into verifying the identity of the buyer, they must have only intended to treat with the person named on the cheque. Remembering that equity deals in fairness it is reasonable to suggest that the judgement was due to the plaintiff’s elderly age in this case. While not mentioned in either case, it is worth distinguishing that the former case involved a professional in a commercial setting, whereas the latter were elderly women conducting the private sale of a car. Traditionally the courts have held in cases where one party should have a particular skill or knowledge, the expectation is higher. Essentially, a professional vendor should be aware of such deceits or frauds common in that line of business.

Lewis is another reversal on the previous case involving Lord Denning. While he acknowledges the tension in the case, Lord Denning goes on to express that it would be unfair to punish the innocent third party. This case involved another sale of a car and the 'rogue' going to extreme lengths to reassure the seller even by producing valid identification. While the judgements in these cases are inconsistent, what is common is that the 'rogue' goes to great lengths to assure the other of his identity through the use of fraudulent identification, stolen cheque books and through verification in the phonebook. While these cases still seem to contradict the written rule, it is a better demonstration of why the mistake of identity fits better in misrepresentation. The 'rogue' goes to great lengths to induce the sellers to treat them. Fraudulent misrepresentation as inducement is grounds for rescission of a contract. This inducement can then be tied to the principles of offer and acceptance. Lord Millett affirms this by distinguishing between aspects of the offeror’s identity which are material to the inducement of the contract.

The seminal case in recent times for mistakes in identity is Shogun Finance. The case involved the hire purchase of a car in which the fraudster used a fake identity to pass a credit check and enter into the contract. The fraudster immediately sold the car to a third party. The defendant in the case claimed they had statutory protection from the Higher Purchase Act. The case was a reversal of the earlier trio because the contract was reduced to writing. The written rule applied regardless of the deal being inter praesentes. The claimant was successful on these grounds because the title had not passed to the ‘rogue’. However, the case has been criticised because a credit check is considered a mistake of attribute not of identity. Lord Millett has suggested removing this distinction, which would allow for clearer interpretations.

These cases show a clear inconsistency but one of the deciding factors in Shogun was an offer and acceptance clause in the agreement which contained the phrase, “you [the customer named overleaf]”. This clause allowed the contract to be reduced to writing and clearly demonstrated that the claimant intended only to deal with the individual named on the credit check.

Considering the above, if commercial contracts were to include such a clause and for the courts to consider the matter in misrepresentation, there would be a clearer path for the courts to follow. Furthermore, the 'rogue' never had any intention to pay and as such there is arguably no meeting of the minds which is a foundation of offer and acceptance and therefore, no contract can be formed. Looking at the inducement factors in misrepresentation and the meeting of the minds in offer and acceptance together, would allow the courts to rule void or rescission of contract much more easily. This basically leaves each party in a position where the contract had never existed because the title would not have passed to the 'rogue'. Unfortunately, this still leaves the innocent third party as the victim.

In addition to this approach, it would be prudent to not distinguish between identity and attributes and finally, considering equity, it would be reasonable to hold those considered as professionals to a higher standard than to those making a private sale, once reasonable efforts to verify identities were made.

References:

• Cundy v Lindsay (1878) 3 App 459.

• Philips v Brooks Ltd (1919) 2 KB 243.

• Ingram v Little [1961] 1 QB 31.

• Lewis v Averay [1972] 1 QB 198.

• Christopher Hare “Identity Mistakes: A Missed Opportunity”, The Modern Law Review 2004,67(6) 993-1007, 1001.

• Branwhite v Worchester Works Finance Ltd [1969] 1 AC 552, 951H.

• Shogun Finance v Hudson [2004] 1 AC 919.

• The Higher Purchase Act 1964, S.27.